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Analysts not sold on tax holiday

John McCain is one of the senators who unveiled the legislation last week. |
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Critics argue the fundamental problem in the sluggish economy is weak demand, which makes corporations hesitant to hire and invest, and a tax break would not address the absence of market demand.

But the flaw in many of those reports has been the focus on individual companies instead of the broader economy, since the benefits can accrue elsewhere, noted economist Douglas Holtz-Eakin, president of the American Action Forum.

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Holtz-Eakin recently projected the economic impact for the U.S. Chamber of Commerce if the tax on repatriated dollars is reduced to 5.25 percent.

His analysis estimates that the gross domestic product could, at a minimum, increase by $140 billion, generating roughly 1.25 million jobs over the course of two years. Basically, on average, that would be another 50,000 jobs a month.

That would be an impressive stimulus but a gradual improvement rather than an instantaneous surge of employment. It simply takes time for the benefits to sieve through a $15 trillion economy, he said.

“The money coming back is not the hard part,” Holtz-Eakin said. “It’s how quickly it can filter through the economy.”

Citigroup strategist Steven Englander wrote in a new report that $800 billion to $1 trillion could be returned to the United States, making the cuts a “more powerful stimulus” than the Cash for Clunkers program and the recent moves by the Federal Reserve to reduce interest rates.

The Obama administration has opposed such a tax holiday without broader tax reform. But pressure has already been mounting to use any additional revenues generated by the holiday to seed a $10 billion infrastructure bank championed by the White House.

Corporations involved in the Working to Invest Now in America campaign have lobbied for the tax holiday by saying it would help them make investments.

Electric utility Duke Energy could, in theory, return the majority of the $1.2 billion it holds overseas, which could help pay for the construction of power plants and smart grid infrastructure.

The North Carolina-headquartered company expects to spend $11 billion to $13 billion over the next three years on capital investments. With the repatriated funds, it could accelerate construction and limit the amount of debt needed for financing, said spokesman Tom Williams.

Corporate America — buffered by some bipartisan backing on the bill — has made passing it a top immediate priority.

“I was told by our executives it was No. 1, 2 and 3,” said Jason Mahler, vice president of government affairs for software developer Oracle. “And I’m not sure what is a close fourth.”

Readers' Comments (10)

"In assessing the 2004 tax holiday, the nonpartisan Congressional Research Service reports that most of the largest beneficiaries of the holiday actually cut jobs in 2005-06 – despite overall economy-wide job growth in those years – and many used the repatriated funds simply to repurchase stock or pay dividends. Today, when U.S. corporations have ready access to cash they have accumulated and are holding here in the United States, it is even harder to make the case that a repatriation holiday will unlock new investment and job creation."

The economists saying the repatriation won't provide jobs are the same ones that say government spending results in a $2.20 return on the spending while tax cuts provide less than a $1.00 in return for a $1 in tax cuts.

These are economic idiots. Government spending comes about in one of three ways: 1) taxes, 2) printing money, or 3) borrowing money.

Taxes suck money out of the private economy. You can never get more back than what you take out. Government inefficiency eats up the rest.

Printing money just devalues the existing money so you can't ever get more back than what you print.

If you can we should borrow our entire budget from China, spend it, get $2.20 back for each $1 in the budget, pay off the China loan, and book the extra $1.20. We could pay off the national debt in about four years this way.

*THAT* is what these economists are trying to get us to believe. Is there *anyone* out there than buys into this idiocy?

Repatriated money can be used to buy back stock, buy new equipment, pay off debt, or be spent in hiring. All of these will result in economic growth which will result in hiring -- perhaps indirect hiring but hiring nonetheless.

Why are stock buybacks that puts money in people's pockets any less effective than direct government spending that puts money in people's pockets?

Why not do what Hagan and McCain want, while spending everyh dime of that 8.25% collected on infrastructure spending. It wouldn't increase teh deficit and both the tax cut and the revenue collected from the fact that the money actually came into the US can be used to create jobs.

We CANNOT AFFORD this kind of Corporate Welfare because business is already sitting on a trillion dollars of cash that they aren't using to create any jobs. This is just another giveaway to the corporations who aren't paying their fair share off taxes already! No wonder we can't pay down the deficit. The only people who have any money aren't required to pay taxes..... PLEASE......

Companies will NOT create jobs because their is NO DEMAND FOR THEIR PRODUCTS. Remember...the economy is based on supply and demand. There's no demand now because people don't have any money to spend until they are able to get a job. Its a quagmire and the only solution is for Government to invest in infrastructure spending here in THIS country instead of sending that money over to that black hole in the Middle East.

Nobel Laureate Joseph Stiglitz points out the richest 1% of Americans now own 40% of the nation's wealth. This disparity is much worse than it was in the past, as just 25 years ago the top 1% owned 33% of national wealth.

How much does the bottom 80% own? Only 7%.

#2) The Top 1% Take Home 24% of National Income:

While the richest 1% of Americans take home almost a quarter of national income today, in 1976 they took home just 9% -- meaning their share of the national income pool has nearly tripled in roughly three decades.

#3) The Top 1% Own Half of the Country's Stocks, Bonds and Mutual Funds: The Institute for Policy Studies illustrates this massive disparity in financial investment ownership, noting that the bottom 50% of Americans own only 0.5% of these investments.

#4) The Top 1% of Americans Have Only 5% of the Nation's Personal Debt:

Using 2007 figures, sociologist William Domhoff points out that the top 1% have 5% of the nation's personal debt while the bottom 90% have 73% of total debt.

#5) The Top 1% Are Taking In More off the Nation's Income Than at Any Other Time Since the 1920s: Not only are the wealthiest 1% of Americans taking home a tremendous portion of the national income, but their share of this income is greater than at any other time since the Great Depression, as the Center for Budget and Policy Priorities illustrates in this chart, using 2007 data.

this amnesty will never work. the money will come in be divided out to the top and little if any jobs will be come out of this, money will again begin to pileup overseas. Drop the corp rate to 11% at the low and scale it up with the amount of employees outside of the US and raise the capital gains tax from 0% after the first $50k to 25% up to 100k and 35% after that.

Business plans long term when hiring workers. They have to justify the outgoing expenses and see a long term return.

A short term tax holiday does NOTHING to help business hire more workers.

If you want real hiring to happen then you have to give business long term incentives to do so. That means regulatory reform that takes the chokehold off of business's neck and tax reform that allows business to make money when they hire Americans.

Democrats will never agree to that though. They hate business, prosperity and freedom. The Obama Depression is fufilling their liberal dreams of MISERY AND POVERTY FOR ALL.

Just Say No To Corporate Welfare. We would be effectively letting these corporations cheat on their taxes. If the rest of us don't pay taxes, does the government just offer us a lower rate if we don't pay, NO. Oh and then there is the massive deficit, which avg Americans will have to pay even more of if we are handing out corporate welfare.

One of the primary objectives of US foreign policy is to support US business abroad. i.e. Military bases in Saudi Arabia, installing governments in Latin America, trade deals, enforcing copyright laws, haggling with China over currency valuation, etc. If these corporations don't feel that they need to look out for Americans, then the American Military and Foreign Policy should no longer look out for them.